1) Contract in the Civil Code framework

The Philippine Civil Code (Republic Act No. 386), Book IV, treats a contract as a principal source of obligations. Obligations may arise from law, contracts, quasi-contracts, delicts, and quasi-delicts (Civil Code, Art. 1157). A contract is defined as a meeting of minds whereby one or more persons bind themselves to give something or to render some service (Art. 1305).

Two foundational consequences follow from that definition:

A contract is primarily about consent (a “meeting of minds”).
A contract creates obligations (to give, to do, or not to do).

2) Core principles governing contracts

Philippine contract law under the Civil Code is often explained through several interlocking principles. These principles guide how contracts are formed, interpreted, enforced, and limited.

A. Autonomy of contracts (Freedom to stipulate)

Parties may establish stipulations, clauses, terms, and conditions as they deem convenient provided they are not contrary to law, morals, good customs, public order, or public policy (Art. 1306).

Practical meaning: Parties are generally free to craft their deal—price, timelines, warranties, penalties, dispute mechanisms—so long as mandatory law and public policy boundaries are respected.

Common limits in practice:

Prohibitory or mandatory provisions (e.g., rules that protect consumers, employees, tenants, spouses, compulsory heirs).
Clauses that attempt to waive rights the law declares non-waivable.
Stipulations that are in fraud of creditors or intended to evade the law.

B. Consensuality (Consent as the general rule)

As a rule, contracts are perfected by mere consent (Art. 1315). This means most contracts become binding the moment there is a meeting of minds on the essential terms.

Key exceptions:

Real contracts (e.g., deposit, pledge, commodatum/loan for use) are not perfected until delivery of the object (Art. 1316).
Formal contracts where the law requires a specific form for validity (e.g., certain donations) or for enforceability.

C. Mutuality of contracts

A contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them alone (Art. 1308).

Effect: One-sided “I can cancel anytime for any reason but you can’t” type provisions are vulnerable if they effectively leave the contract’s existence or performance to one party’s sole discretion, especially when not tempered by objective standards or reciprocal rights.

D. Relativity of contracts (Privity)

Contracts take effect only between the parties, their assigns and heirs (Art. 1311), subject to important exceptions.

Why it matters: Generally, strangers to a contract cannot demand performance from parties, and parties cannot impose duties on strangers.

E. Obligatory force and good faith (Pacta sunt servanda)

Obligations arising from contracts have the force of law between the contracting parties and must be complied with in good faith (Art. 1159).

This is the Civil Code’s central statement of the binding effect of contracts: once validly formed, the contract is enforceable like “private law” between the parties, and performance must observe honesty, fairness, and fidelity to the agreed purpose—not merely literal compliance designed to defeat the bargain.

3) Essential elements of contracts (the requisites under Article 1318)

A contract exists and is valid (as a general rule) when it has the three essential requisites:

Consent of the contracting parties
Object certain which is the subject matter of the contract
Cause of the obligation which is established

(Civil Code, Art. 1318)

Each element carries doctrinal detail and frequent litigation issues.

A) CONSENT

1) What consent is

Consent is the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract (Art. 1319). Consent must be real, intelligent, and free.

A contract can be broken down into:

Offer (a proposal with sufficient definiteness)
Acceptance (an assent that matches the offer)

a) Offer

An offer must be certain enough that acceptance will perfect a contract without further negotiations on essentials. If key terms are missing or left for future agreement (e.g., “price to be agreed later” in a sale), the “offer” may be legally insufficient.

b) Acceptance

Acceptance must be absolute; if it changes the offer, it is a counter-offer (Art. 1320 in substance). A “qualified acceptance” generally does not perfect a contract because there is no meeting of minds.

c) When acceptance binds (especially for parties not face-to-face)

For acceptance made by letter or telegram, the offeror is bound only from the time the acceptance comes to the offeror’s knowledge, and the contract is presumed entered into where the offer was made (Art. 1319).

Practical implication: timing and proof of communication matter in disputes over whether a contract was perfected, especially with remote communications.

2) Capacity to give consent

Even if offer and acceptance exist, the law requires that parties have capacity to contract.

Those who cannot give valid consent include:

Unemancipated minors
Insane or demented persons
Deaf-mutes who do not know how to write (Art. 1327)

Contracts entered into by such persons are generally voidable (not void) unless a special rule applies (Arts. 1390–1391), meaning they bind unless annulled, and they can be cured by ratification.

3) Vices of consent (when consent is defective)

Even capable parties may give consent that is legally defective due to the “vices of consent.” A contract where consent is vitiated is typically voidable.

Common vices include:

Mistake (error)
Violence
Intimidation
Undue influence
Fraud (Arts. 1330–1344, in substance)

a) Mistake

Mistake must generally relate to the substance of the thing or conditions which principally moved the party, or to the identity/qualifications of a party when such is the principal cause. Mere errors of judgment usually do not suffice.

b) Violence and intimidation

Consent obtained by physical compulsion or serious threats can invalidate consent. The threat must be such as to produce a reasonable fear of an evil upon person or property.

c) Undue influence

Occurs when a person takes improper advantage of power, confidence, or relationship, depriving another of a free choice.

d) Fraud (dolo)

Fraud that induces consent can make the contract voidable. There is a classic distinction between causal fraud (fraud that determines consent) and incidental fraud (fraud that does not determine consent but causes damage), with different consequences (voidability vs. damages).

4) Simulation of contracts

The Civil Code recognizes:

Absolute simulation: the parties do not intend to be bound at all → generally void.
Relative simulation: parties conceal their true agreement → the hidden agreement may bind if it has the requisites of a valid contract and is not illegal. (Arts. 1345–1346)

5) Consent in standardized and adhesion contracts (Philippine setting)

Modern transactions frequently use pre-printed, non-negotiated forms (bank loans, insurance policies, telco/utility terms, online click-through agreements). These are generally enforceable if the essential requisites exist, but ambiguous provisions are commonly construed against the party who drafted or caused the obscurity (a principle reflected in the Civil Code’s interpretive rules, e.g., Art. 1377).

B) OBJECT (Subject matter)

1) What “object” means

The object is the thing, right, or service that is the subject matter of the contract. It must be determinate or at least determinable without the need of a new agreement of the parties.

2) Requirements of a valid object

The object must be:

Within the commerce of men (i.e., capable of private appropriation or lawful dealing)
Licite (not contrary to law, morals, good customs, public order, or public policy)
Possible (not physically or legally impossible)
Determinate/determinable (Arts. 1347–1349, in substance)

Examples of problematic objects:

Contracts for illegal services or prohibited acts → void.
Contracts over things outside commerce (certain public properties, non-transferable rights) → void insofar as prohibited.

3) Future things and future services

As a rule, future things/services may be valid objects if not impossible and not prohibited by law. Certain special contracts (like sale) have additional rules on future things and expectations, but the object principle remains: it must be lawful and determinable.

C) CAUSE (Consideration)

1) Cause vs. motive

Cause is the essential reason that justifies the obligation created by the contract. Motive is a personal reason that may exist in a party’s mind. Motive generally does not affect validity unless it becomes the cause or is common to both parties and is illicit.

2) Kinds of cause

Under the Civil Code:

In onerous contracts, the cause for each party is the prestation or promise of the other (the “consideration”).
In remuneratory contracts, the cause is the service or benefit remunerated.
In gratuitous contracts, the cause is the liberality of the benefactor. (Art. 1350)

3) Presumptions and effects

Cause is presumed to exist and be lawful unless the debtor proves otherwise (Art. 1354).
The inadequacy of cause generally does not invalidate a contract (Art. 1355), though it may be relevant in cases involving fraud, undue influence, or other equitable doctrines (and in specific legal settings where lesion matters).

4) Illicit cause

If the cause is illegal or contrary to law/public policy, the contract is void. This connects directly to the Civil Code’s rules on void/inexistent contracts and the doctrine of in pari delicto (Arts. 1409–1422, in substance).

4) Form: not an essential element, but often decisive in practice

A. General rule: form is not required for validity

Contracts are obligatory in whatever form they may have been entered into, provided all essential requisites are present (Art. 1356).

B. When form matters

Form can matter in three main ways:

For validity (the contract is void without the required form) Example: certain donations have strict form requirements.
For enforceability (the contract exists but cannot be enforced in court unless form is complied with) The Statute of Frauds makes certain agreements unenforceable unless in writing and subscribed by the party charged or their agent (Art. 1403[2]). Typical categories include agreements not to be performed within a year, certain sales of goods, and certain agreements involving interests in land.
For convenience, proof, and effectiveness against third persons The Civil Code lists acts and contracts that should appear in a public document (Art. 1358). While many such contracts may be valid even if not in a public instrument, the proper form can be crucial for registration, enforceability against third parties, and evidentiary weight. If the law requires a document, a party may compel the other to observe the form once the contract is perfected (Art. 1357).

5) Perfection and “when a contract begins to bind”

A. Stages of a contract

Preparation/negotiation: parties discuss terms; generally no contract yet.
Perfection: meeting of minds on essential elements (Art. 1315), or delivery for real contracts (Art. 1316).
Consummation: performance and fulfillment.

B. Binding effect begins upon perfection

Once perfected, the contract gives rise to obligations and the parties must perform in good faith (Arts. 1159, 1315–1318). Rights and obligations generally become demandable according to the contract terms, subject to conditions, periods, or other stipulations.

6) The binding effect of contracts (and its scope)

A) “Force of law between the parties”

The Civil Code’s central rule is that contractual obligations have the force of law between the contracting parties (Art. 1159). This reflects pacta sunt servanda: agreements must be kept.

Scope of what binds:

Express stipulations actually agreed upon.
Implied stipulations required by law, nature of the obligation, usage, and good faith (a recurring theme in Civil Code interpretation and obligations doctrine).
Consequences that flow from the contract under the Civil Code’s rules on interpretation and effect.

B) Good faith in performance

Good faith is not merely absence of fraud. It entails:

Honest performance consistent with the agreement’s purpose.
Cooperation necessary to realize the contractual object.
Avoidance of technical maneuvers that defeat the bargain.

In Philippine civil law, good faith also interacts with broader norms like the duty to act with justice and observe honesty and good faith in the exercise of rights (Art. 19), and liability for willful or negligent acts that cause damage (Arts. 20–21).

C) Relativity (who is bound and who may enforce)

General rule: only parties, heirs, and assigns

Contracts generally affect only the parties and their successors (Art. 1311). Heirs and assigns are bound unless the rights/obligations are not transmissible by nature, by stipulation, or by law.

Key exceptions (third persons affected or benefited)

Stipulation pour autrui (third-party beneficiary) If a contract clearly and deliberately confers a favor upon a third person, the third person may demand its fulfillment provided they communicate acceptance before revocation (Art. 1311, second paragraph, in substance).
Contracts creating real rights Third persons who come into possession of the object are bound by contracts creating real rights (Art. 1312).
Protection of creditors Creditors may be protected against contracts intended to defraud them (Art. 1313), connecting to rescissible contracts and the action to rescind in fraud of creditors.
Tortious interference A third person who induces another to violate a contract may be liable for damages to the other contracting party (Art. 1314). This recognizes that contractual stability is protected not only by breach remedies against the obligor but also by delictual liability in appropriate cases.

D) Mutuality and enforceability

Because contracts must bind both parties (Art. 1308), the law resists:

Clauses making the contract’s existence depend solely on one party’s whim.
Discretionary powers without objective standards or reciprocal checks.

7) Enforcement and remedies for breach (Civil Code setting)

A perfected and valid contract is enforceable through the remedies of obligations and contracts.

A) Principal remedies

Specific performance The injured party may demand fulfillment of the prestation (especially in obligations to give or to do, where feasible), together with damages in proper cases.
Resolution (cancellation) in reciprocal obligations In reciprocal obligations, the injured party may choose between fulfillment and rescission/resolution, with damages (Art. 1191). This is a powerful remedy in sales, leases, service agreements, and other bilateral contracts.
Damages A party guilty of fraud, negligence, or delay, or who in any manner contravenes the tenor of the obligation, is liable for damages (Art. 1170, in substance). The Civil Code’s damages framework (Arts. 2195 onward) governs the types and computation.
Penalty clauses Parties may stipulate a penalty for breach; penalty clauses are generally enforceable subject to Civil Code rules on reduction when iniquitous or unconscionable (Arts. 1226–1230, in substance).

B) Delay (mora) and demand

Delay often requires judicial or extrajudicial demand, unless demand is not necessary under the Civil Code’s exceptions (Art. 1169, in substance). The presence of a due date, the nature of the obligation, and contractual stipulations determine when delay begins.

C) Fortuitous events

As a general rule, no one is responsible for events that could not be foreseen, or which though foreseen were inevitable (Art. 1174), unless the law or stipulation provides otherwise or the nature of the obligation requires assumption of risk.

8) Contracts that do not (fully) bind: defective contracts and their effects

The Civil Code is explicit that not every agreement that looks like a contract is binding in the same way. Understanding “binding effect” requires knowing the major categories of defective contracts:

A) Rescissible contracts (Arts. 1380–1389)

These are valid and binding until rescinded due to economic prejudice or fraud on certain protected interests (e.g., certain cases involving guardianship, partition, fraud of creditors). Rescission here is an equitable remedy to repair harm, not simply to undo any bad bargain.

B) Voidable (annullable) contracts (Arts. 1390–1402)

These are binding unless annulled. Typical grounds:

Incapacity (e.g., minority)
Vitiated consent (mistake, violence, intimidation, undue influence, fraud)

Voidable contracts may be ratified, which cures the defect and makes the contract fully binding.

C) Unenforceable contracts (Arts. 1403–1408)

These cannot be enforced in court unless ratified or unless the evidentiary requirement is satisfied. They include:

Those within the Statute of Frauds not put in writing as required
Contracts entered into in the name of another without authority
Certain agreements where both parties are incapable of giving consent (as categorized by the Code)

Unenforceable does not always mean “invalid”—it often means “no action to compel performance” until the legal defect is cured.

D) Void or inexistent contracts (Arts. 1409–1422)

These produce no legal effect from the beginning. Common grounds:

Object or cause is illegal
Contract is absolutely simulated or fictitious
Object is impossible
Contract is expressly prohibited or declared void by law

The Civil Code further regulates recovery when parties are in wrongdoing (in pari delicto) and provides exceptions in certain situations (Arts. 1411 onward, in substance).

9) Interpretation: how the binding effect is determined when terms are disputed

When parties disagree on what the contract requires, courts apply the Civil Code’s rules on interpretation (Arts. 1370–1379). Central ideas include:

If the terms are clear, the literal meaning controls, but the intention of the parties is paramount when ambiguity exists (Art. 1370, in substance).
Stipulations should be interpreted together, not in isolation.
General terms may be restrained by the evident intention and circumstances.
Ambiguities are construed against the party who caused the obscurity (Art. 1377).
In adhesion situations and unclear drafting, interpretation tends to protect the party who did not draft the terms.

Interpretation rules are crucial because the “binding effect” is not only about whether the contract binds, but what exactly it obliges each party to do.

10) Synthesis: what must be present for a contract to bind—and how far it binds

A contract is binding in Philippine civil law when it is perfected and valid, meaning:

Consent exists (proper offer and acceptance), from parties who have capacity, and consent is not vitiated.
The contract has a lawful, possible, determinate/determinable object.
The contract has a cause that exists and is lawful.
If the law requires form for validity or enforceability, that requirement is satisfied.
Once binding, it has the force of law between the parties and must be performed in good faith (Art. 1159), subject to:
- mutuality (Art. 1308),
- relativity and its exceptions (Arts. 1311–1314),
- and defenses or remedies arising from defective contracts (Arts. 1380–1422) or from breach (Arts. 1170, 1191, and related provisions).

In the Philippine Civil Code design, contract law balances private autonomy with legal limits and public policy, and balances stability of agreements with equitable relief where consent, legality, or protected interests are compromised.